Inventory plays an important role in any business. It is an indicator of how much goods a seller has in their stock, that they can sell to their customers and book revenue. In the current economic scenario, a business must maintain the right amount of inventory, so that it can cater to its customers as well as does not have too much cash stuck in creating the inventory.
In this post, we will take you through what is the meaning of inventory and the key aspects of e-commerce inventory management.
There are a couple of points that you need to understand when we talk about inventory:
What this essentially means is that inventory includes all the manufacturing stages in a product’s life cycle, starting from the raw material the company has bought to manufacture the product, right up to the ready product that is stocked to cater to customer’s demands.
Another important aspect of inventory is that for the company producing the goods, inventory is always classified as an asset when they prepare their financial statements. This is because any inventory is created only for the sole purpose of selling to customers and generating revenue.
Inventory management is the area of business that deals with managing the entire inventory cycle of a product. It is important for any company to follow proper inventory management practices because inventory is related to two very important drivers of any business: Money and Customers. From the meaning of inventory, it’s understandable that from the company’s point of view: Inventory is the summation of all the unrealized revenue potential. The substantial monetary investment is made upfront to build up the inventory.
The other way to look at this is that, unless the company can sell the inventory and generate revenue, they are not able to get the money back they have invested.
Next, let’s understand how this affects the customer. To stay relevant in the current competitive market, companies need to provide the customers the best of everything. That includes delivering the product to the customer at the fastest possible time. This can be only done if the right inventory level is maintained by the company. Now that you have an overall idea about inventory and its importance, let us go into the specifics of inventory management in the e-commerce segment.
The e-commerce business faces some unique challenges when it comes to managing the right level of inventory. Let us figure them out.
This is the classic challenge of matching the supply with demand. If you are unable to grasp your customers’ requirements, you could end up in a situation where you have a lot of unsold inventory stuck with you. Conversely, not having enough inventory could lead to a situation where you are losing out on orders due to the inability to deliver.
Any business that is just in its starting phase maintains the inventory data manually. The entire order fulfillment cycle involves manually identifying the product from the inventory catalog and then updating the inventory records. This is acceptable for small-scale operations, but as soon as you want to scale up this system will not work because there will be vast data that you have to manage which includes multiple storage houses, vendor partners, delivery associates, and manufacturers.
When you will start selling across multiple avenues channels, orders will start coming in at the same time from each one of these channels. To cater to the increased demands, you have increased your warehouses. But if you don’t have real-time updates on the orders that are coming in or the inventory available in your warehouses, you will not be able to figure out if you can meet the demands.
When you’re trying to grow your e-commerce business, you’ll not be able to make the right calls without the help of the right inventory data reports which provide real-time insights into aspects such as demand trends, product-wise inventory liquidation, etc.
Most e-commerce businesses are operating as online retailers, which means these businesses generally don’t have to deal with the inventory management aspects at the manufacturing or WIP level. Yet, the inventory management process is very critical.
Too much inventory will block your monetary resources. And even though in absence of adequate inventory you could accept customers’ orders with delayed delivery, but it will only result in the decrease of their trust in you and an increase in dissatisfaction with your service.
